In the period surrounding World War I, US firms sharply increased investment in fixed assets and working capital to accommodate large increases in demand associated with the war. Concurrently, the US adopted an excess profits tax, which created a tax bias in favor of equity financing. Despite this tax bias, firms in need of external funds largely issued debt, not equity, to finance investment spikes when the excess profits tax was in effect. Further, we find these firms systematically reduced debt after the war, whereas other firms did not. The results support models that link the dynamics of firms’ financing decisions with the dynamics of their investment opportunities and are inconsistent with models that emphasize taxes as a primary determinant of financing decisions.

Dual-class recapitalizations and leveraged buyouts have similar effects on ownership of corporate voting rights but very different effects on ownership of residual claims. We predict that firms with greater growth opportunities, lower agency costs, and lower tax liability are more likely to consolidate control through dual-class recapitalizations. We find strong support for the growth hypothesis and weaker support for the other hypotheses. These results increase our understanding of the causes of change in organizational form by illustrating that the method and effects of consolidating corporate control are systematically related to firm attributes.

In the first round of the Czech privatization scheme, the authorities set a uniform share price for all companies, creating a natural experiment for testing several hypotheses concerning the determinants of share demand. We find a positive relation between first-round share demand and later stock market prices, supporting use of share demand to measure relative share values. We find that share demand is related to proxies for agency costs and the expected costs of financial distress. Interestingly, share demand is directly related to the percentage of shares held by insiders, which is relevant for the debate in former Communist countries over whether privatization programs should restrict insider holdings.